Simon Kirby, Network Rail’s managing director, infrastructure projects, spoke in the rail engineer seminar theatre at Infrarail recently and outlined his thoughts and objectives for the new Network Rail Infrastructure Projects business which he is setting up. It will have quite an impact on the industry, so it is worth reporting what he had to say.

He started by reminding his listeners that rail is a growth industry. “We used to use a statistic there’s more people using the railways now since the second world war – there’s actually more people using the railways now than there ever has been on what clearly is a smaller infrastructure, a more closely packed infrastructure, and a lot of what we are doing is around capacity – it’s about addressing many of those issues created by that growth.”

However, as Simon commented: “Rail is a fantastic place to be at the moment”, and he reported that discussions with government around funding are very positive in terms of seeing rail as one of the ways of stimulating economic growth.

Network Rail’s performance in this control period is on track in terms of reducing cost, and Simon emphasised that there is a firm commitment to reduce costs further by 2014. Safety is an absolute priority, but delivering the programme safely, at lower cost, is forcing Network Rail to look to change and be more collaborative in the future.

Into the future

Looking at CP5 and into the future, Simon stated that Network Rail will be “A fundamentally different company by the end of 2012”. It has already devolved its route operations into separate business units. Route managing directors are in place across the country, focused on customer engagement while running and operating the assets of a high performing railway.

Over time, different relationships will evolve in different ways, depending on the specifics of that route. Simon believes that Network Rail will become more of a group of companies, and in some routes will be more connected with its customers from a business perspective. In fact, there has recently been an announcement on an alliance with South West Trains, the first example of that type of relationship.

However, he is mindful that it is very important to remember the network-wide benefits of running a national railway system, so Network Rail will still have a key role in terms of running Britain’s railways apart from the devolved routes.

As part of that role, Network Rail is creating a separate project business which he outlined to his audience. It is aligned regionally with the route businesses, as the new routes are the prime customers of the new Infrastructure Projects business. There are four regional areas, Scotland and the North East, Central, Western and Southern. They are not route-based, mainly because of economies of scale and some technical reasons behind some of the projects, but are regionally-based with route delivery directors supporting each of the key customers.

Signalling remains a national programme because it is of strategic importance, and also because there are design resources all around the country that can work on projects wherever they are in England, Scotland and Wales.

Additionally, there are still two major outstanding programmes, Thameslink and FTN/GSM-R. Both are currently at critical stages of their development and these will remain under central control.

Clear and accountable relationships

Organisationally, there would have to be changes. “To actually have a competitive market though, bearing in mind our key client will be Network Rail, we have to separate the Infrastructure Project business into a separate subsidiary company”. He said that a lot of work is currently going into that, and the plan is to make the change next year to enable true competition by having a separate subsidiary company with its own systems and financial controls to be able to operate in that environment.

One of the main changes is that this year, for the first time, the four regions, will have profit and loss accounts and will be run as businesses with accountable management teams. As Simon said: “For me, it’s about giving those people more accountability, decentralising the organisation”.

There will still be a central organisation of course, but it will be under half the size of the organisation of a couple of months ago. Responsibility will be moved into the regions with some support from the centre, rather than having the centre running the business.

So why is this being done? “It is about CP5 and the future. It’s about creating an organisation that frankly people want to work with – an organisation that is delivering value through a more competitive market. Running a monopoly organisation, it’s virtually impossible to demonstrate value for money – you can benchmark things but clearly, ultimately, competition is the only way we believe we can do that. So opening the market up as part of this process to competition on some of our projects is one of the key elements of the reason behind doing it.”

There will also be earlier and greater engagement with partners. As an example, Simon cited the London Bridge project on Thameslink. “We start construction in 2013 next year and, as of last year, all of our key partners, certainly at first tier and in some cases at second or third tier, are now involved in the design process helping to deliver hopefully a safer and more constructable solution. I do believe by getting the people involved in the construction in the design has to be the right thing from a safety performance point of view.”

Opening up competition

All this will open up the market in terms of new suppliers. Moving into CP5, elements that Investment Projects delivered by right under the old organisation will now be opened up to contestability. So the Infrastructure Projects organisation will be competing in the market for projects alongside existing partners and new market entrants. It is obviously about lower unit costs, and bringing new suppliers and technology into projects will deliver those benefits.

Simon thinks that, as Network Rail forges closer relationships with its suppliers, it will potentially have fewer partners in the future than it did in the past. He believes that is almost inevitable as more framework contracts are placed, but, as he said, “Hopefully that will enable longer term planning in those partner organisations. We’ll have much closer projections of work and people will know what they’ve got to deliver, not just next month but next year and the year beyond, so they can plan resources and train people for that.”

International interest

Network Rail also has a low-key international agenda. “One of the areas we’ve been looking at, and we’ve decided we’re going to move into, we get asked every couple of months by someone somewhere in the world can we help advise on a rail project. Normally by governments or a government agency, and sometimes actually by consultant engineers who comment that organisations like DB, SNCF, NTR are in that sort of space and we’re not. So we’re looking at creating an international consultancy business to really work in partnership with other consultancies to deliver that type of advisory service.”

It will be on a small scale to start with, but Simon hopes it will change perceptions of Network Rail in terms of being engaged in international projects around the world.

Organisationally, there would have to be changes. “To actually have a competitive market though, bearing in mind our key client will be Network Rail, we have to separate the Infrastructure Project business into a separate subsidiary company.” He said that a lot of work is currently going into that, and the plan is to make that change next year to enable true competition by having a separate subsidiary company with its own systems and financial systems to be able to operate in that environment.

Not the only player

And so, by the end of next year, Network Rail Infrastructure Projects is looking to compete for projects. Simon put it like this: “Ultimately in CP5 we will be a major player, but not the only player, in developing and delivering projects for Network Rail. Without giving you the wrong perception though, the higher value/higher risk projects, the Thameslinks, the Readings, that type of thing, there’s certainly no plans at present to compete at that sort of level in terms of taking output and taking capital risk. But smaller, low value projects that’s certainly the plan and something we’ll work on with the pilots over the next 18 months.”

To do that, a different type of strategy was announced about a year ago in March. It is about “Safer delivery, driving down costs, introducing more innovative solutions, reducing scope variations because we have got much more aligned objectives between ourselves, our consultants and our contractors in one project rather than having potentially different objectives. This is about aligning our risks and our financial objectives to create one high-performing group of teams.

“And clearly reducing duplication and resources is happening now – I’ve been to a few projects recently where Network Rail staff are working for contractors or consultants who are then working for a Network Rail manager, and vice versa, so its great to see that and that is already delivering benefits for both Network Rail and some of its partners on some of our projects.”

Learning from Europe

To work out the best formula for alliancing, Simon Kirby reported that Network Rail conducted an investigation about 18 months ago which looked at different projects around Europe in transport, in rail and in different types of infrastructure. It looked at why certain models worked and certain models didn’t, and developed a seven stage model that goes all the way from complete outsourcing to a joint business limited company relationship.

“Most of our focus at the moment, though, is very much in more collaborative working, either in pure closer engagement all the way through to a number of alliances with shared risks and shared objectives which we’ve now got in place.

“There’s certainly a commitment to do this, but we do believe, to get to where we want to get to, we do need longer term relationships. Things will go wrong, things will work, and we need to learn from that.”

Simon is very mindful that Network Rail, as a client, needs to have an appetite for innovation. It needs engineers who want that innovation and understand where it’s right or wrong to apply that innovation and that’s obviously a cultural issue which needs more focus.

Transparency and collaboration

It also needs openness and transparency. According to Simon, Network Rail is publishing a lot more information now and will continue to do so going forwards. He said that more aligned objectives are needed, and that is the focus at project level. Different forms of contract are being developed for alliances, after much study of other forms of contract used across other sectors and other utilities such as electricity and water.

However, as a client, Simon admits that Network Rail can only really enter into these relationships when it understands, at the start of the project, what the costs of that project should be. A lot of work will need to go into benchmarking and cost build up. There will be much more emphasis on behaviour and technical competence and a target cost compared with a few years ago. In his opinion, the key objective is to demonstrate value for money, so there is a real need to understand the costs of programmes.

Network Rail achieved BS11000 a couple of months ago, the first infrastructure client company to achieve that. “It’s not about the certificate though, its about things being different on the ground,” Simon commented. “And for those who know the model, it really does cover all aspects from strategic issues all the way through to awareness and ultimately, if things go really wrong, how do you disengage from the relationship. It is assessed by a third party, it is done collaboratively with our partners, and I’m very pleased to say that we have now achieved that on a number of programmes.

“It is all about aligned objectives, and as a client organisation it’s about people understanding our objectives and vice versa, and we are seeing innovation now starting to come through in a number of areas on the work we are doing.”

Simon finished off by speaking directly to Network Rail’s contractors. “But for me it’s about engagement – it’s about understanding what you need and my teams understanding what you need – in the new world in the new Infrastructure Projects business.”